Economic context. Data on Spain in 2017
- GDP grew by 3.1%.
- Half a million new jobs.
- 90 risk premium points lower.
- Low interest.
- Lower financing costs.
The start of 2018 was similar to the end of last year, the country continued to recover, but at more moderate rates.
In this context of expansion there were new investment opportunities. It is important to think about this when we look at investing in the future.
Where are the current opportunities and why?
At the moment, the biggest challenge for investors is finding availability for products that fit with their investment strategies, especially in the case of core investors.
Below we give a list of sectors that have investment potential:
The retail sector (high-street stores and shopping centres) will continue to benefit from the increase of families’ spending. Investment in the first quarter was around to 850 million euros and the global forecast is in excess of 3,500 million.
While in Europe the development of new shopping centres has been slowed down by e-commerce, in Spain -where it is not yet so developed and where shopping is more linked to leisure- there is still a lot of demand to make these assets more attractive to the investor. That is why new shopping centres are being created, especially in secondary towns, and older ones will be remodelled to adapt to the current demand.
High-Street stores are still attractive, but there is limited availability in big cities.
The great beneficiary of the e-commerce boom and the need for storage, unsurprisingly, is the logistics sector, which has become a key choice for investors both in Madrid and Barcelona and in secondary locations (Valencia, Zaragoza, Seville and Málaga), where they have seen more than 10% growth of available area in 2017.
Madrid and its area of influence has managed to increase the contracting of these assets by almost 75% compared to last year and global market value grew by about 5% year-on-year.
Investment in 2018 has already risen to nearly 500 million euros and a total investment of around 1400 million is expected. The big problem with these buildings is the high amount of industrial land they need and the lack of availability of it in these key locations.
Now new pockets of land need to be managed in well communicated developments throughout Spain that allow for the best possible delivery times.
In the Offices sector, we expect a total investment over 2,000 million euros. We are looking at new build opportunities and in carrying out remodelling projects to supply a growing demand for wide, good quality spaces in the key areas of the main cities. Obviously, until this offer becomes effective we will continue to see a case of moderate income increase around 5% with a slight contraction of profitability.
The excellent figures for tourism both last year and what is forecast for 2018 indicate great investment figures for the hotel sector, and we may even see the figures exceed last year’s levels, although the sector is beginning to show signs of fatigue due to the rise of the African Mediterranean. However, it seems that the entire demand will continue to be left unsatisfied, especially in the case of holiday markets. It will therefore be necessary to make use of extra hotel rooms.
A lot of the investment will go towards the purchase and remodelling of existing properties, especially in areas where the development of new buildings has been limited and will be especially active in Madrid, Barcelona, Malaga and Palma de Mallorca.
Investors with a low risk profile will likely prefer properties that have already been renovated and managed by prestigious operators, while those with a more moderate risk profile will likely prefer to deal with reforming real estate to later disinvest.
If expected economic expectations are met, the residential sector will consolidate its growth, albeit at a more moderate pace. It is expected to hit a buying/selling figure of 570,000 operations at the end of the year.
Due to the need of an offer that meets the current demand, promoters will continue to start up new housing projects, especially in areas surrounding big cities, because they know they can get a guaranteed return there.
Gesvalt is leading consultancy in Spain.